Tata Sons to remove Cyrus Mistry unless he steps down first

A report on Thursday, however, said that Mistry had no plans to step down as chairman from any of the group companiesArijit Barman | ET Bureau | Updated: November 04, 2016, 16:11 IST

Tata Sons, the holding company of the Tata Group, will move soon, possibly within a few weeks, to remove its former chairman Cyrus Mistry from the chairmanship and boards of various group companies

The Indian Hotels board is meeting on November 4 and the Tata Chemicals board on November 9 to consider the September quarter results. Other boards will meet over the next one month. These meetings will provide an indication of future course of events.

Individuals familiar with the Tata strategy said Tata Sons will give the former chairman opportunity to voluntarily step down from each of the boards. If this doesn’t happen, the parent holding company plans to move resolutions to evict him.

“In the event Mistry doesn’t step down either on his own or after prodding from the board, Tata Sons as the key shareholder will be forced to call for an EGM by issuing a special notice. They will work with both foreign and domestic institutional investors to rally support,” said an official in the know.

“Tata Sons has given corporate guarantees on behalf of most of the group companies. Most institutional investors know the power of the Tata brand,” the official said.

“At worst, some of the institutional investors can abstain from voting. Going by previous case studies, it is very unlikely that anyone will openly oppose the resolution. After all this not a corporate battle or a hostile takeover but a fight between two group of shareholders,” explained one of the sources cited. He said feelers on the necessity to oust Mistry had gone to some independent directors of Tata Group companies. When contacted, Tata Sons spokesperson refused to comment.

A week after Mistry was removed from the top job at Tata Sons — the group holding company — in a boardroom coup, he still remains the chairman and non-executive director of key listed group companies such as flagship TCS, Tata Motors, Tata Power and Indian Hotels. Only in Tata Communications, Mistry is not in the board and Subodh Bhargava is the chairman.

There are 29 publicly traded companies under Tata Sons, with a combined market value of about $120 billion as per Bloomberg data. In each of them, between Tata Sons and Trusts, the shareholding ranges from 26-74%.

A PTI report on Thursday said Mistry had no plans to step down as chairman from any of the group companies. Sources close to Mistry also confirmed this to ET.

The sources with knowledge of the Tata strategy said that if Mistry resists — like he did on October 24 when he was asked by Tata Sons board member Nitin Nohria and Ratan Tata to resign before the board meeting in which he was removed – then each board is entitled to replace him as chairman of their company.

The board of directors of a company can seek the removal of a director, an action which also needs shareholder approval. A resolution removing a director can be passed by a simple majority of shareholders, present and voting. However, in such an eventuality, the directors will have to provide shareholders with a statement explaining why they proposed this resolution.

However, if a board refuses to replace him, Tata Sons will have to move a resolution to remove him from the board membership of that company. Removal from the board automatically disqualifies an individual from continuing as the chairman of a company.

Analysts expect such an eventuality — of a board refusing to sack Mistry — is a distinct possibility in some companies like Indian Hotels Company that runs the Taj chain. Noted banker Deepak Parekh, who is on the Taj board, has openly expressed surprise at Mistry’s ouster.

But in such a case, the board will also be faced with a unique situation wherein their promoter (Tata Sons) have had already expressed lack of confidence and replaced Mistry as their chairman.

But Tata Sons will not issue written directives to the individual boards pressing for his resignation, added the sources.

According to experts, as per law, the shareholders have the right to vote on a resolution for removal of a director before the expiry of his term. They can either launch the process of removal themselves or can vote on a resolution proposed by the board of directors. The removal is done by an ordinary resolution passed by a simple majority of the shareholders who are present and voting in a general meeting.

Section 169 (1) of the Companies Act 2013, only requires that the director who is sought to be removed shall be given a reasonable opportunity of being heard. A special notice is required in case of any resolution to remove a director.

Shareholders holding 10% or more of the share capital of the company can requisition an extraordinary general meeting (EGM). The time period between the notice and the EGM is 21 days. The company is mandated to complete the entire process within 45 days.

The company, within 21 days of receipt of the request, needs to hold an extraordinary general meeting. A shorter timetable is also possible if 95% or more of the shareholders entitled to vote agree on it.

ET in its edition dated October 29 reported that Tata met with Life Insurance Corporation brass and assured them that publicly traded group companies will uphold “proper governance standards” and decide independently about former chairman Cyrus Mistry’s continuation on their respective boards. Senior group officials have already reached out to senior fund managers and institutional investors to garner support for what is expected to be a protracted boardroom battle.

For example, with aggregate investments of close to Rs 36,000 crore in various group companies, LIC is the largest institutional investor in Tata Group companies owning over 13% stake in both Tata Steel and Tata Power and close to 10% in Tata Global Beverages.

When a company receives the special notice from a shareholder or group of shareholders, it has to immediately intimate the director whose removal has been sought. This director can send a written representation to the company, asking that it be circulated to all shareholders together with the notice of the proposed meeting. The company also has to send the notice to all shareholders, at least seven days before the proposed meeting.

The aggrieved person can present his case to shareholders in the EGM as well.

Any meeting which is held between two consecutive annual general meetings is an extraordinary general meeting. Since there is a lapse of more than twelve months between two annual general meetings, an extraordinary general meeting can be requisitioned by the shareholders to transact any urgent matter, including removal of a director before his tenure.

The directors of Tata Sons have not removed Mistry from their board as yet and will not do so immediately. But he can be removed whenever his term at a director of Tata Sons comes up for renewal which will happen next year. In TCS for example, Mistry’s directorship is coming up for renewal in the next AGM in calendar 2017.